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€-Vision

There is an old Irish joke about a man who is lost and asks a local the way to a small village. The local pauses and answers: if I wanted to go there I surely wouldn’t start from here. Something similar applies to the European labour market. The news on joblessness in Europe has seemed so bleak for so long that it might seem hard to find a good word to say about it. But consider the following.

The EU labour market turned in May of 2013. Since then unemployment, seasonally adjusted, has fallen month for month, continuously in the EU28 and with a few brief intermittent spikes in the Euro Area, too. Over the more than three and a half years of expansion unemployment has fallen by 5¾ million of which just under 3 ¼ million in the Euro Area. On average, each month unemployment came down by 140 thousand and 78 thousand persons respectively.

The figure, which shows the month-on-month changes in unemployment (in thousands, slightly smoothed to reduce noise) puts this recent performance into perspective.

In terms of reducing unemployment the recent labour market expansion has been substantially stronger than that following the severe post-German-unification recession of the early 1990s. The monthly cuts in joblessness have been of a similar order of magnitude to those between the downturn/stagnation of the early 2000s and the subsequent Great Recession: the monthly averages between May 2005 and March 2008 are very similar (a touch lower in the EU28, a bit faster in the Euro Area). But the recent expansion has already lasted longer. As a a consequence, the overall improvement is great by around 750 thousand in the EU and more than half a million in the Euro Area. Moreover, it is not yet over, although, worryingly, the decline in unemployment seems recently to have decelerated.

The problem, in short, is the starting point. In particular the catastrophic mismanagement of the euro area crisis that came on the heels of the initial financial/trade crisis, and from which the European labour market had begun to heal (see here and the links therein). So the jobs recovery has been solid and extended but it has only been enough, in the Euro Area, to get us back to where we already were at the start of 2011, as you can see in today’s graph of unemployment rates from Eurostat:

Given the amount of labour market slack that had been created, a much faster pace of reduction in unemployment would have been needed to mitigate social hardship and avoid longer-term damage to employment prospects and economic growth potential. Progress has been steady, that’s the good news. But we should never have started from here. Alternatively – for there is no use crying over split milk – given the starting point in 2013 we should not have walked to the village but taken a car, which would have meant finding a way to permit expansionary fiscal policy.